Could Gold Be In A New Bear Market?

[Abrak]

the only valid argument Mrs Naam has is that our income is a multiple of our expenses and that's the reason why it does not make any difference whether gold or (presently) cash rots away without providing any yield.

Well if she can persuade you that gold bears a resemblance to cash - apart from the lack of yield - then she is pretty smart.

[Orion76]

This is something owners of gold will want to pay attention to:

While some commentators were hopeful that the new speculative limits would be applied equally to both sides of the trading battlefield, (both speculators and hedgers), it is crystal clear, both from the documents and from comments by the Commissioners, that the Commission intends to maintain exemptions to the limits for the largest hedgers and short sellers of energy futures (as was our suspicion in previous commentary on the subject last year).

If this same formula were adopted by the Commission for the metals complex later this year, it would have minimal, if any effect on the very concentrated positioning of a few very large, dominant players on the short side of the market in gold and silver. Instead, the effect would be to limit most traders on the long side of the battlefield somewhat, but continue to favor those very large traders who claim “bona fide hedging” with no real effective limits. For example, Swap Dealers would be limited to no more than twice the speculative limit even with an exemption, but bona fide hedgers would not be limited as such.

When the Commission meets to discuss precious metals in March, they may still be under the mistaken impression that investors are worried about the “excesses caused by excessive speculation,” which was the driving force behind their energy market initiative. Instead, what the Commission should be focused on in March should be the overwhelming and commanding position which is currently held by one or two U.S. banks. The banks are able to amass very large positions in excess of the exchange-set position (and accountability) limits because they take advantage of exemptions from those limits as bona fide hedgers.

One key part of the exemption rules allow a “person” to claim an exemption not because of anticipated production, but because of ownership of the physical commodity. Bona fide hedging exemptions currently include exemptions for “traders with inventory or anticipatory purchase or sale transactions in the physical commodity.” We see nothing in the current proposed change to Federal position limits which alters that.

Today bona fide hedging can be utilized to hedge merely financial risk, as opposed to hedging for future production, for example. In fact, for precious metals, a majority of bona fide hedging has nothing whatsoever to do with future production of metal. That’s why it is not a good argument to compare the amount of hedging in precious metals futures markets to future production of the commodity. Future production is a miniscule amount of metal compared to existing metal already above ground. That is especially true for gold, less so for silver.

A bullion bank, for example, that holds (or manages for clients) large amounts of the metal in its vaults, is able to claim an exemption to futures position limits, presumably so it can hedge the risk of the value of the metal held from falling. Some savvy market watchers point out that, perversely, the trading size limit exemptions allow those bullion banks to take such large hedging and short positions that over time they are able to ensure that the price will fall from the weight of their own short selling in that commodity.

Full article here:

http://www.stockhouse.com/Columnists/2010/...-limits-for-gol

The interesting thing about gold is that it is not really consumed and that the world keeps turning just fine if we'd run out, as opposed to oil for example.

Oil producers hedge oil from the short side to lock in future profits. Oil buyers, such as transport companies, hedge oil from the long side to lock in future expenses.

With gold, miners will hedge gold from the short side to lock in future profits. Gold buyers such as buillon banks, gold funds such as GLD, etc. will hedge gold from the short side too, to protect against the risk of depreciation. I haven't researched or verified this but I have been told that GLD is one of the world's largest shorter of gold, while this may appear sinister it makes perfect sense from a risk management point of view.

I'm not a gold expert or economist so I hope someone more knowledgeable than me can answer the following questions:

1: What entity will hedge gold from the long side, in a proportion that is similar to the short positions of gold miners and gold banks/funds and the likely to be excempt JPM toxic assets?

2: If majority of the "bona fide" hedgers are short then was the recent gold rally driven by speculative long positions?

3: What is likely to happen to the price of gold when the CFTC passes new regulations that limits position sizes of speculators, but not those of "bona fide" hedgers?

4: If speculators drove the market up by being long, what is to stop them from driving the market down by taking short positions if the trend turns down?

And a final question for conspiracy theorists: The CFTC is a US government organization. If they are going to pass new regulations to curb gold speculation, would the US government prefer higher or lower gold prices? If they have no preference then why are they intervening in the first place?

I hope a gold expert can enlighten me

[hawthorne]

In theory trying to regulate speculative trading to prevent wild swings in prices of any commodity to stabilize economies sounds good.

The problems with government regulations is they easily get out of control, cost tax payers too much, and it only leads to alternative investments.

Look at Enron and every other huge run on an investment. Those that make the money never complain but the ones that lose are crying. Did the banks complain when they were making loads of money with the housing boom?

I also agree that what Sorros did to Thailand he should been held accountable on nothing less than ethical issues. Now look at the leading regulations for restrictions placed on the transfer of currency. Same as corporate raiders that destroyed jobs for the greed of a few. Ethics in making a lot of money in a short time frame rarely go hand in hand.

The governments have a huge task to try and stabilize economies. They have fiscal policies and I would suggest sticking to this tactics and leave free market trade alone. It is not perfect and greed will always cause unethical decisions. Any movement the other way is just too much government control over our lives. An informed investor will notice and have an ample opportunity to see these bubbles. I am amazed at the greed of people that did not use common sence during the Enron, biotech, and Internet bubble. All loses were due to greed or not being informed about your investments. I feel worst for those with money in Pensions that had no real control of where their money was being invested but that is another topic.

Going to gold bubble. At this time I do not think Gold is at the top of a real bubble. Most speculative buyers have left it alone. It will devalue on its own. The premium will slowly reduce and a more stable value will emerge. Futures were established for hedging commodity prices for producers and buyers of the goods. Essentially a self price stabilizer of commodities in both directions and the consumer is rewarded by having this stablized gas price or grocery bill. Then you get the use of futures for speculative buying and that is really the issue you speak about and trying to regulate. So hard to keep speculative investors out of this vehicle but a nice thought.

I want the speculative hedge fund to stay around. They are the ones that tend to keep honesty in the market. It is the other side of the speculative greed on inflating a stock or commodity price. Hedge investors often appear to do better research on the investment. The fall becomes evident to many but the timing is the magic.

What I disagree with the hedge funds is the unethical means of tying to get an investment to fail.

[bkk_mike]

Gold is only good in a crisis.

i.e. It's got a value that if currencies drop means it will gain in relation to it.

However, in the absence of a crisis, or when coming out of a crisis, gold pays no interest, so it's not a good long-term investment as everyone will start to sell their gold in order to buy stuff that does pay interest (or a dividend).

[flying]

Gold is only good in a crisis.

i.e. It's got a value that if currencies drop means it will gain in relation to it.

However, in the absence of a crisis, or when coming out of a crisis, gold pays no interest, so it's not a good long-term investment as everyone will start to sell their gold in order to buy stuff that does pay interest (or a dividend).

True in many ways......

So the question is....

Are we in a crisis? Are we headed further into a crisis?

Are we coming out of a crisis? Are we already out of a crisis?

[Orion76]

True in many ways......

So the question is....

Are we in a crisis? Are we headed further into a crisis?

Are we coming out of a crisis? Are we already out of a crisis?

Put 10 of the world's best economists in a room to debate this issue and it will likely result in a fist fight. I wouldn't expect to find the answer on this forum

Another valid question is: if there is more crisis ahead of us, will it cause the same end-of-the-world sentiment as when this mess started?

My guess:

End of the world -> Gold

Recession is a little worse than we thought -> USD

[lannarebirth]

True in many ways......

So the question is....

Are we in a crisis? Are we headed further into a crisis?

Are we coming out of a crisis? Are we already out of a crisis?

Put 10 of the world's best economists in a room to debate this issue and it will likely result in a fist fight. I wouldn't expect to find the answer on this forum

Another valid question is: if there is more crisis ahead of us, will it cause the same end-of-the-world sentiment as when this mess started?

My guess:

End of the world -> Gold

Recession is a little worse than we thought -> USD

One of which is highly liquid.

[Naam]

Are we in a crisis?

yes

Are we headed further into a crisis?

yes, but not a very serious one

Are we coming out of a crisis?

yes

Are we already out of a crisis?

no

[Orion76]

The sokal indicator is screaming buy signals today

[flying]

My guess:

End of the world -> Gold

Recession is a little worse than we thought -> USD

Im not so sure it takes the end of the world scenario to make one bullish on gold.

Loss of faith in any of the major Fiats should do as well.

Loss of faith in current systems...

Loss of faith in the ability of TPTB to continue to float the boat

There are times one has to wonder how their incomes to back such fiat will

continue at old levels given the UE which appears to be worsening world wide.

They were operating in the red before but now with this unbridled enthusiasm for creating

more debt & the reduced income (taxation) to repay it.... Just makes me wonder a bit.

Then again I know many see the loss of faith in a Fiat as a end of world scenario

Im not so sure a devaluation/revaluation would be an end of world scenario....but it may be a

recession a little worse than expected scenario...In which case I do not see that as USD or which ever fiat it affects as a positive...

Edited February 1, 2010 by flying

[britmaveric]

Buy low, sell high - only fundamental which one needs to know about gold.

[flying]

Buy low, sell high - only fundamental which one needs to know about gold.

I guess if your talking trading paper based on the price of gold....

But if your talking real physical gold you would be hard pressed in this 10 year chart

save Feb08 to do as you suggest.

Even then

The premiums that go with real gold change things quite a bit.

If I remember right the premium in Feb 08 was over $100 per oz coin

Edited February 1, 2010 by flying

[britmaveric]

^ that is my point.

[Orion76]

flying: You're only showing half the chart, here's what it looks like all the way to 2020.

Why not? Past performance does not guarantee future results

[flying]

Past performance does not guarantee future results

I agree that pertains to all things

[VegasVic]

This is something owners of gold will want to pay attention to:

While some commentators were hopeful that the new speculative limits would be applied equally to both sides of the trading battlefield, (both speculators and hedgers), it is crystal clear, both from the documents and from comments by the Commissioners, that the Commission intends to maintain exemptions to the limits for the largest hedgers and short sellers of energy futures (as was our suspicion in previous commentary on the subject last year).

If this same formula were adopted by the Commission for the metals complex later this year, it would have minimal, if any effect on the very concentrated positioning of a few very large, dominant players on the short side of the market in gold and silver. Instead, the effect would be to limit most traders on the long side of the battlefield somewhat, but continue to favor those very large traders who claim “bona fide hedging” with no real effective limits. For example, Swap Dealers would be limited to no more than twice the speculative limit even with an exemption, but bona fide hedgers would not be limited as such.

When the Commission meets to discuss precious metals in March, they may still be under the mistaken impression that investors are worried about the “excesses caused by excessive speculation,” which was the driving force behind their energy market initiative. Instead, what the Commission should be focused on in March should be the overwhelming and commanding position which is currently held by one or two U.S. banks. The banks are able to amass very large positions in excess of the exchange-set position (and accountability) limits because they take advantage of exemptions from those limits as bona fide hedgers.

One key part of the exemption rules allow a “person” to claim an exemption not because of anticipated production, but because of ownership of the physical commodity. Bona fide hedging exemptions currently include exemptions for “traders with inventory or anticipatory purchase or sale transactions in the physical commodity.” We see nothing in the current proposed change to Federal position limits which alters that.

Today bona fide hedging can be utilized to hedge merely financial risk, as opposed to hedging for future production, for example. In fact, for precious metals, a majority of bona fide hedging has nothing whatsoever to do with future production of metal. That’s why it is not a good argument to compare the amount of hedging in precious metals futures markets to future production of the commodity. Future production is a miniscule amount of metal compared to existing metal already above ground. That is especially true for gold, less so for silver.

A bullion bank, for example, that holds (or manages for clients) large amounts of the metal in its vaults, is able to claim an exemption to futures position limits, presumably so it can hedge the risk of the value of the metal held from falling. Some savvy market watchers point out that, perversely, the trading size limit exemptions allow those bullion banks to take such large hedging and short positions that over time they are able to ensure that the price will fall from the weight of their own short selling in that commodity.

Full article here:

http://www.stockhouse.com/Columnists/2010/...-limits-for-gol

The interesting thing about gold is that it is not really consumed and that the world keeps turning just fine if we'd run out, as opposed to oil for example.

Oil producers hedge oil from the short side to lock in future profits. Oil buyers, such as transport companies, hedge oil from the long side to lock in future expenses.

With gold, miners will hedge gold from the short side to lock in future profits. Gold buyers such as buillon banks, gold funds such as GLD, etc. will hedge gold from the short side too, to protect against the risk of depreciation. I haven't researched or verified this but I have been told that GLD is one of the world's largest shorter of gold, while this may appear sinister it makes perfect sense from a risk management point of view.

I'm not a gold expert or economist so I hope someone more knowledgeable than me can answer the following questions:

1: What entity will hedge gold from the long side, in a proportion that is similar to the short positions of gold miners and gold banks/funds and the likely to be excempt JPM toxic assets?

2: If majority of the "bona fide" hedgers are short then was the recent gold rally driven by speculative long positions?

3: What is likely to happen to the price of gold when the CFTC passes new regulations that limits position sizes of speculators, but not those of "bona fide" hedgers?

4: If speculators drove the market up by being long, what is to stop them from driving the market down by taking short positions if the trend turns down?

And a final question for conspiracy theorists: The CFTC is a US government organization. If they are going to pass new regulations to curb gold speculation, would the US government prefer higher or lower gold prices? If they have no preference then why are they intervening in the first place?

I hope a gold expert can enlighten me

Orion, Your #4 question is about to happen Gold is not an investment, but rather an ornament, a speculative tool or a short term hedge! The actual industrial demand for gold has been dropping since 1990 when it was around 13% of gold production, currently it accounts for less than 9% of production, the other 91% is in jewelry manufacture(which has been in decline since the onset of the worldwide recession) and speculation(which has increased substantially since the onset of the worldwide recession). While some see a near term blow off top in the $1300-$1400 range coming before the eventual crash happens, most hedge funds realize that the Dollar carry trade will unwind soon and the U.S. will begin to increase interest rates which will further strengthen the U.S. Dollar and cause gold to fall. You very astutely pointed out when gold begins to tumble those speculators who are long currently will go short and exacerbate the decline in the price of gold. Take a look at Oils move from the $60/bbl range to the $147 and then back to the $30's, this is a typical speculative bubble and the same will happen to gold. Perhaps the only difference will be that when gold crashes it will not rebound like oil has done recently, because oil is needed and has 100% industrial-consumer utilization while gold is only needed by a relatively few industrial applications and many of those applications are finding substitutes for gold. I get a kick out of goldbugs trying to put forth gold as a good long term investment, even when you forget the fact that gold does not keep up with inflation in the long term, the simplest of investments at a mere 4% interest compounded annually absolutely crucify gold as an investment in the long term, not only do you not recieve any interest or dividend on gold but physical gold actually costs you money because you need to pay for a safe storge for your gold Q.E.D.

[flying]

Gold is not an investment, but rather an ornament,

We will see

The end of the gold love affair? Not for long

[VegasVic]

Gold is not an investment, but rather an ornament,

We will see

The end of the gold love affair? Not for long

How's that gold investment working for you today flying This is just the begining, you had better be prepared to throw in the towel or buckle up that seat belt my friend, because this could be a wild ride down

[flying]

Gold is not an investment, but rather an ornament,

We will see

The end of the gold love affair? Not for long

How's that gold investment working for you today flying This is just the begining, you had better be prepared to throw in the towel or buckle up that seat belt my friend, because this could be a wild ride down

Dont forget I loaded up the truck at 750/oz...Back when a certain guy from Vegas was telling me wait for 400

Although my adjusted cost is quite a bit lower ...If gold dips under 1050 I will probably back the truck up for one more smaller haul. I of course would like to buy at 980-1000 but I know what is going to happen with premiums & availability of coins at that range ( if it gets there that is ) so... I may go in a bit early if...........it gets below 1050

Hope all is well with you & stay away from that suedo paper gold stuff

Edited February 4, 2010 by flying

[Naam]

Gold is not an investment, but rather an ornament,

We will see

my view: holding physical gold up to a certain percentage of total assets might be also viewed as an insurance in uncertain times. it does not really matter whether the price goes up or down as any booklosses should be considered as payment for said insurance. one doesn't get upset not having been in a hospital or not causing an accident when the year has passed and the new premiums for health or car insurance are due.

more critical might be the situation of those who bet the ranch on gold and their assets are more than 50% and up to 100% in gold. during the Bear Sterns éclat in mar 2008 a prominent goldbug (and Thaivisa member) who is (according to his statements) 100% invested in gold forecasted 1,500 US-Dollars per ounce for mar 2009.

next month we have march 2010

[flying]

one doesn't get upset not having been in a hospital or not causing an accident when the year has passed and the new premiums for health or car insurance are due.

True that

[Naam]

Flying, i am missing your often used expression "interesting". isn't it interesting that global markets are weak but Gold falls 4% although USD strengthened an average of only 1%? i think this is food for thoughts.

[lannarebirth]

Flying, i am missing your often used expression "interesting". isn't it interesting that global markets are weak but Gold falls 4% although USD strengthened an average of only 1%? i think this is food for thoughts.

Dollar up, Yen up = deleverage speculative investments.

[Naam]

Flying, i am missing your often used expression "interesting". isn't it interesting that global markets are weak but Gold falls 4% although USD strengthened an average of only 1%? i think this is food for thoughts.

Dollar up, Yen up = deleverage speculative investments.

interesting!

[lannarebirth]

Flying, i am missing your often used expression "interesting". isn't it interesting that global markets are weak but Gold falls 4% although USD strengthened an average of only 1%? i think this is food for thoughts.

Dollar up, Yen up = deleverage speculative investments.

interesting!

Not my most insightful post, I agree.

[flying]

Flying, i am missing your often used expression "interesting". isn't it interesting that global markets are weak but Gold falls 4% although USD strengthened an average of only 1%? i think this is food for thoughts.

:D

To tell you the truth....I dont watch too closely anymore.

I have accumulated pretty much what I wanted & have thought recently I may get a little bit more if

gold should drop below 1050...But I am pretty much satisfied with where I am. Silver done for sure

But overall as you know I am not investing in metals...I just buy & store them because I choose not to hold too many $$$

Save a couple years expense.

Plus as you may or may not know/care it is tax time here...So........I have been busy with that.

You know that Individual Rape Account? Some call it an IRA/401K etc.

Well I closed one this year deciding I had enough of this govt. Well I knew there would be a 10% penalty for early withdrawal.

But now that it is time to pay...... it does not make it any easier to swallow

I swear I just dont get it.....Ok so I put money in because years ago I did some project management for a company.

Fine they had a 50% match so I figured what the he!!

Yeah it goes in tax free & I expect I have to pay tax as income when it comes out...No different than those that wait till their 60 years old etc.... But whats up with this 10% penalty???

Faking Govt....what gives them the right?

Not that they ever needed a right before but I must say it really grates on you.

It is basically a savings & none penalize you 10% for any other savings anywhere in the world when you decide to take it back eh?

Yeah yeah yeah...home of the free.... land of the brave

Sorry for the rant but I was just doing my Tax papers & wanted to vent to another tax hating individual... like I know you are :D

Edited February 5, 2010 by flying

[Abrak]

my view: holding physical gold up to a certain percentage of total assets might be also viewed as an insurance in uncertain times. it does not really matter whether the price goes up or down as any booklosses should be considered as payment for said insurance. one doesn't get upset not having been in a hospital or not causing an accident when the year has passed and the new premiums for health or car insurance are due.

This would be fine if I could work out what exactly gold is insuring against. As you say you dont mind paying a price for not having an accident but you tend to get pissed off if you do have one and insurance doesnt pay. So during the financial crisis - certainly uncertain times - the gold price actually went down.

The only real insurance gold seems to give you is insurance against the gold price going up.

[flying]

This would be fine if I could work out what exactly gold is insuring against. As you say you dont mind paying a price for not having an accident but you tend to get pissed off if you do have one and insurance doesnt pay. So during the financial crisis - certainly uncertain times - the gold price actually went down.

The only real insurance gold seems to give you is insurance against the gold price going up.

That seems odd to me.

Why not view it as a forex if nothing else?

You can sell it pretty much any day of the week ...anywhere in the world.

I could go into the whole spiel about how it could buy you a good suit so very many years ago & the same holds true today but....Im sure you have heard all that eh?

Edited February 5, 2010 by flying

[lannarebirth]

^ How can you view something you pay an 8%-10% premium on every time you exchange it for another "currency", as forex? It is fungible but the limitations are many and the penalties of ownership are steep. By contrast the slippage on a $USD forex exchange could be as low 1/100th of a penny.

[flying]

^ How can you view something you pay an 8%-10% premium on every time you exchange it for another "currency", as forex? It is fungible but the limitations are many and the penalties of ownership are steep. By contrast the slippage on a $USD forex exchange could be as low 1/100th of a penny.

Well yes perhaps a poor choice for Abrak

It is not my choice I just was looking for a reason/word for him as he said he had none.

But out of curiosity...who pays that 8-10% premium at every exchange you speak of when it comes to metals?

If you mean the premium above spot that shows the difference between paper gold & physical...Well I am not sure I call that a premium so much as a adjustment between that which exists & that which does not

Those I know who sold collected the same premium not lost it.

Edited February 5, 2010 by flying